Delta Fears Grow

Energy

Downward pressure on oil continues, with ICE Brent closing 2.8% lower yesterday, and edging back towards the US$70/bbl level. WTI has already fallen below this level and is trading closer to US$68/bbl. The key concern for the market remains the spread of the delta variant in China and the tougher mobility restrictions that have been imposed in some regions as a result. Obviously, the big uncertainty is how this situation will evolve in the coming weeks, and what it means for oil demand. For now, restrictions seem to be having more of an impact on domestic air travel, and so we are likely to see jet fuel demand coming under some pressure.

EIA data yesterday was also not very constructive, with US crude oil inventories surprisingly growing by 3.6MMbbls over the week, which is the largest weekly build since early March. The increase was largely a result of lower export volumes, with crude oil exports falling by 585Mbbls/d over the week to 1.9MMbbls/d - the lowest number since May. Exports appear to be finally reflecting the narrowing in the WTI/Brent discount that we saw over much of June and early July. The product side was more supportive of the market, with implied gasoline demand increasing by 450Mbbl/d over the week, which led to gasoline inventories falling by 5.29MMbbls.

Finally, the Saudis released their official selling prices for September loadings, and as widely expected these were increased. Arab Light into Asia was increased by US$0.30/bbl MoM to US$3/bbl, which is the highest level since February last year. OSPs for all other grades into Asia were also increased. The increase in prices comes at a time when OPEC+ members are also gradually increasing output, and so suggests that the Saudis have confidence that the demand will be there for this additional crude oil.

Metals

The industrial metals complex remained under pressure on Wednesday, with the fast spread of the Covid-19 delta variant in many parts of globe raising concerns, while a strengthening USD also weighed on the metals complex. Following the disappointing US ADP job numbers, gold had a knee-jerk response, jumping to US$1,831/oz amid falling yields, but was unable to sustain these gains after some hawkish comments from Fed officials.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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